The Bond Bull Lives

I continue to be amazed by the strength of the bond market. Folks in the media love to mention how most money managers can’t beat the stock market. That’s true, but for the last several years, the stock market hasn’t even been able to beat the bond market. If you had just parked your money in a long-term T-bond, you would have beaten many top pros. By a lot.

Several pundits, myself included, have said that the bond market’s 30-year bull run has finally ended. That appeared to happen last September, but it was a head fake. Treasury yields continue to move lower.

Yesterday, the yield on the seven-year Treasury closed at 1.19% which is a multi-decade low (the FRED data goes back to 1969). For contrast, in 1981, a seven-year Treasury was yielding more than 16%.

The yields on the 5-, 10- and 20-year bonds are now just a few basis points above generational lows. The 30-year bond is a bit of an exception. Its yield is still 38 basis points above the low yield from December 2008. Don’t think this latest run for bonds is all due to purchases by the Federal Reserve. Corporate bonds are also doing well.

Check out this chart which shows how stocks are doing relative to bonds. For my stock proxy, I used the Vanguard 500 Index Investor Fund (VFINX); for bonds I used Vanguard Long-Term Investment-Grade (VWESX).

When the blue line goes down, that means bonds are beating stocks. When it climbs, stocks are beating bonds. Outside a big run-up during the late 1990s, and a smaller climb last decade, bonds have done a very good job of keeping pace with stocks. Over the last 23 years, the corporate bond index fund has outperformed the stock index fund.

Posted by on May 16th, 2012 at 7:04 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.